“Prohibition” Era for Canadian Real Estate

The Prohibition on the Purchase of Residential Property by Non-Canadians Act (the “Act”) is now in effect, as of January 1, 2023. For the next two years, the Act will prevent non-residents from buying Canadian residential buildings with less than four units in a metropolitan area.

As you may assume from that description of its scope, while the name of the Act and the media surrounding its creation suggest a significant impact on non-resident purchases, there are, in fact multiple exemptions to the “prohibition.”

Firstly, the Act does not prevent non-resident buyers from acquiring residential properties which contain four or more units – it only applies to “low-unit” residential properties. Commercial, recreational (ie cottage/camp) and vacant lands are also exempt from the Act. Mobile-homes that are still movable are not impacted as well. To limit its effect even further, the Act only applies to those low-unit residential properties in a “metropolitan census area,” which is defined by Statistics Canada as:

“…one or more adjacent municipalities centred on a population centre (known as the core). A CMA must have a total population of at least 100,000 of which 50,000 or more must live in the core. A CA must have a core population of at least 10,000.”

Foreign buyers will continue to be able to purchase any property in Northwestern Ontario, outside Thunder Bay, unfettered by the Act.

Apart from property-type exemptions, further exceptions exist for the type of foreign buyer. Persons who are students or in Canada on a work permit will continue to be able to purchase residential properties, and if the property is being received as a gift or inheritance that will also be permitted (Of course, a property being transferred as “gift” will be looked at very closely by the Minister appointed under the Act, so it would be wise not to attempt to use this as a loophole if it is not genuine.) Additionally, and appropriately, foreign buyers will be able to be part of the transaction where the purchase is being made with a resident spouse.

If a foreign buyer or property still does not fall under any of the above exemptions, there remains an exemption for purchases that close after January 1, 2023, provided that a written agreement of purchase and sale had been signed prior to that date.

There is very little additional clarity beyond the terms of the short Act at this time – only one regulation has been passed under it so far, which was just to appoint the above-noted Minister. However, it is expected that additional regulations will follow which may expand, tighten or clarify the scope of the Act and its application.

Despite the relatively generous exemptions, the Act treats violations of the prohibition very seriously. A court may order the sale of any property unlawfully acquired by a foreign purchaser and a substantial fine to any person who aids, counsels or abets a non-Canadian (including a non-Canadian corporation) in purchasing a property covered by the Act. This likely would include a seller who knowingly sells a proscribed property to a non-resident buyer.

As a result, if you are interested in buying or selling a property as or to a non-Canadian resident, it would be prudent to contact a qualified real estate lawyer to discuss the impact of this Act, and other potential considerations like the Non-Resident Speculation Tax, on the transaction. The lawyers at Ericksons LLP would of course be happy to assist you. We are a call away.

*The above article is for information purposes only and is not to be taken as legal advice.

January 3, 2023 – Derek T. Noyes

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